Limited deal does little to ease deficit pressures, analysts say

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GOP members led by Eric Cantor of Virginia and John Boehner of Ohio headed toameeting to discuss the fiscal cliff deal.

By Bryan Bender
Globe Staff
January 02, 2013

WASHINGTON — The Obama administration on Tuesday heralded the hard-fought deal to avert the so-called fiscal cliff as a bipartisan breakthrough that “cuts the deficit and reduces the debt as a share of the economy over the next five years.”

But unless Congress and the White House allow the mandated cuts to proceed in two months or identify more revenue, the net effect will be to increase the deficit over the next decade — by nearly $4 trillion, according to one official estimate. And the pared-down package will do little to solve the government’s long-term fiscal challenges, according to current and former government financial managers.

While raising more than $600 billion in new revenue through taxes on the wealthiest Americans, the bill delays a series of across-the-board cuts in government programs. It also funds additional spending on such programs as long-term unemployment insurance, extends a slew of tax deductions for everything from school supplies to filmmaking, and even funnels subsidies to Puerto Rican rum makers.

“They punted on the systemic drivers of our deficits and mounting debt problems,” especially entitlement programs, David M. Walker, former comptroller general of the United States and a trustee of the Social Security and Medicare programs, told the Globe. “On the spending side I give them an F. They didn’t deal with the spending issue in any real way.”

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One tax measure alone — protecting middle-class taxpayers from the Alternative Minimum Tax, which was designed to ensure wealthy Americans pay their fair share — will cost more than $1.8 billion in the next decade, the Joint Committee on Taxation said Tuesday.

Overall, the deal passed by the Senate early New Year’s Day and the House later that night appealed to Massachusetts lawmakers such as Representative Richard Neal, the Springfield Democrat and a senior member of the House Ways and Means Committee. He said that Medicare cuts to doctors were delayed a year, major reductions in medical and defense research were delayed for at least two months, and Pell grants were protected — a win for Bay State universities.

But many other provisions in the 157-page legislation shifted the fiscal balance that the negotiations were originally designed to strike. Failed attempts by Obama and House Speaker John Boehner for a more comprehensive package led to the stripped-down bill.

“We have a deal, but not a grand bargain,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan organization dedicated to responsible fiscal policy started by the late Massachusetts and New Hampshire senators Paul Tsongas and Warren Rudman. “The best that can be said for it is that it smooths out a portion of the cliff. That will benefit the economy in the very near term, but aside from some relatively minor tax increases on the highest of income earners, the net result of the fiscal cliff deal is to preserve an unsustainable status quo.”

For example, the bill extends tax deductions for teachers buying certain classroom supplies, for college tuition, and for research into wind power and other new energy sources. The bill also approved special deductions for film and television productions.

In another example of business as usual, the bill also extends for two years a program under which rum manufacturers in Puerto Rico and the US Virgin Islands are reimbursed for most of the tariffs levied on liquor imports.

The variety of such special-interest sweeteners in the bill were necessary to win support on Capitol Hill, said Neal.

“That’s the usual. Really you’ve got to sell it. You don’t want something hanging out there and someone says, ‘This is the one item, because it’s not in there, I can’t vote for the package,’ ’’ he said.

But fiscal conservatives and deficit hawks expressed outrage at the lack of
spending cuts.

“This deal fails the American people by allowing for more runaway spending from the federal government,” said Tony Perkins of the Family Research Council.

If Congress again ignores the mandated spending cuts after two months elapse, the nonpartisan Congressional Budget Office said Tuesday, the deal would increase the deficit by $3.97 trillion through 2022.

The Obama administration and supporters in Congress, however, insisted that it protects middle class Americans from tax increases and is a good followup step toward reining in the deficit, beginning with higher taxes on the wealthiest Americans. In 2011, Obama agreed to legislation including a total of $1.7 trillion in cuts over the next decade — and those came with no tax increases.

“Yesterday was a small step forward,” Senator Bernie Sanders, a Vermont independent, said in an interview. “At a time when we have gross inequality, we can and should do a lot more in bringing more revenue into the government.”

But a variety of
specialists agreed that though the deal was better than letting the across-the-board tax hikes and automatic spending cuts go into effect, it is no long-term solution.

“Nothing was resolved here,” Bixby said. “If anything, they are digging themselves a bigger hole. They haven’t even come close to doing what they need to do and it doesn’t look like they will anytime soon.”

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